SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL - SJI provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:

▪SJIU is a holding company that owns SJG and ETG and, until its sale in July 2020, owned ELK.

•SJG is a regulated natural gas utility which distributes natural gas in the seven southernmost counties of New Jersey.

•ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey.

•ELK is a regulated natural gas utility which distributes natural gas in northern Maryland. On July 31, 2020, SJI sold ELK (see "Sale of ELK" below).

▪SJE acquires and markets electricity to retail end users.

▪SJRG markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.

▪SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.

▪Marina develops and operates on-site energy-related projects. Marina includes the Catamaran joint venture that was entered into for the purpose of developing, owning and operating renewable energy projects, and supporting SJI's commitment to clean energy initiatives. Catamaran owns Annadale and Bronx Midco, operators of fuel cell projects in New York, in which Marina, through Catamaran, owns 93% and 92%, respectively. Catamaran also owns a solar generation site in Massachusetts, in which Marina, through Catamaran, owns 90%. The remaining ownership percentages are recorded as Noncontrolling Interests in the consolidated financial statements. Previously, Marina also included MTF and ACB, which were sold in February 2020, and solar projects that were sold in 2020 and 2019 as discussed below under Divestitures. The principal wholly-owned subsidiaries of Marina are:

•ACLE, BCLE, SCLE and SXLE own landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties, respectively, located in New Jersey. ACLE ceased operations on September 30, 2021, while BCLE, SCLE and SXLE ceased operations on June 1, 2020.

•Marina owns, directly and through wholly-owned subsidiaries, solar energy projects at rooftop generation sites in New Jersey, including projects that were acquired in 2020 and 2021.

▪SJESP receives commissions on appliance service contracts from a third party.

•Midstream invests in infrastructure and other midstream projects, including the PennEast project for which development ceased in September 2021. See Note 3.

•SJEI provides energy procurement and cost reduction services. The significant wholly-owned subsidiaries of SJEI include:

•AEP, an aggregator, broker and consultant in the retail energy markets that matches end users with suppliers for the procurement of natural gas and electricity.

•EnerConnex, an aggregator, broker and consultant in the retail and wholesale energy markets that matches end users with suppliers for the procurement of natural gas and electricity. On August 7, 2020, SJEI acquired the remaining 75% of EnerConnex, of which SJEI previously held a 25% interest.

•SJI Renewable Energy Ventures, LLC, which holds our equity interest in REV.

•SJI RNG Devco, LLC, which includes our renewable natural gas development rights and costs incurred in order to develop certain dairy farms.

BASIS OF PRESENTATION - SJI's consolidated financial statements include the accounts of SJI, its direct and indirect wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. SJI also reports on a consolidated basis the operations of those entities listed under "Acquisitions" below as of their respective acquisition dates, along with its controlling interest in Catamaran as noted below. In management's opinion, the consolidated financial statements of SJI and SJG reflect all normal recurring adjustments needed to fairly present their respective financial positions, operating results and cash flows at the dates and for the periods presented.  

Certain prior years' data presented in the financial statements and footnotes have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company's results of operations, financial position or cash flows.

ACQUISITIONS – Additional information about these transactions is included in Note 20.

2021:

•Bronx Midco – this entity was formed by Catamaran and a third party and is 99% owned by Catamaran. In June, Bronx Midco purchased a fuel cell project in Bronx, NY, of which Marina, through its ownership in Catamaran, has a 92% ownership interest.

•Acquired two solar energy projects, one in New Jersey and the other in Massachusetts.

2020:

•Rooftop solar generation sites - SJI, through its wholly-owned subsidiary Marina, acquired three entities owning newly operational solar-generation sites in June and a fourth entity in August.

•EnerConnex – In August, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of the remaining 75% of EnerConnex. Prior to this transaction, SJEI had a 25% interest in EnerConnex; as such, the acquisition of the remaining 75% was accounted for as a business combination achieved in stages.

•Catamaran – In August, SJI, through its wholly-owned subsidiary Marina, formed the Catamaran joint venture with a third party partner. On the same date, Catamaran purchased 100% ownership of Annadale, of which Marina has a 93% ownership interest.

•REV – In December, SJI, through its wholly-owned subsidiary SJIEE, completed its acquisition of a 35% interest in REV. As part of the transaction, SJI also acquired renewable natural gas development rights in certain dairy farms, previously owned by REV. The 35% interest in REV is accounted for under the equity method of accounting (see Note 3).

2019:

•AEP – In August, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP.

DIVESTITURES –

•Solar assets – In June 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its then-existing portfolio of solar energy projects (for this section, the "Projects"), along with the assets comprising the Projects. These sales occurred during 2018-2020, including Projects sold during 2020 and 2019 for total consideration of $7.2 million and $24.3 million, respectively. In connection with this transaction, Marina was leasing back from the buyer certain of the Projects that had not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes. The leaseback ran from the date each such Project was acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the Project. As of December 31, 2021, there were no remaining Projects that were being leased back from the buyer. The results of these leased back Projects during the years ended 2021, 2020 and 2019 were not material.

The Company recorded pre-tax gains on the sale of these solar projects of $0.8 million and $3.1 million in 2020 and 2019, respectively, in Net Gain on Sales of Assets on the consolidated statements of income, with these gains pertaining to those Projects that were not impaired as discussed under "Impairment of Long-Lived Assets" below.

At December 31, 2019, the Company had two projects that are not part of the above transaction but were previously expected to be sold and, as a result, were recorded as Assets Held For Sale on the consolidated balance sheets as of December 31, 2019. During the fourth quarter of 2020, management made the decision not to sell these two projects. As a result, these projects are recorded as held and used in Property, Plant and Equipment on the consolidated balance sheets as of December 31, 2021 and 2020. SJI recorded $5.3 million of depreciation expense during the fourth quarter of 2020 for depreciation not taken during the time the projects were classified as held for sale. Further, the decision not to sell these projects resulted in a triggering event for management to assess these projects for impairment. As a result of the tests performed, no impairments were recorded as the future undiscounted cash flows exceeded the net book value of the projects as of December 31, 2020.

•MTF & ACB – In February 2020, the Company sold MTF and ACB for a final sales price of $97.0 million, including working capital and recognized a pre-tax gain in 2020 of $1.1 million, which is recorded in Net Gain on Sales of Assets on the consolidated statements of income.

•ELK – In July 2020, the Company sold ELK and, in 2020, received total consideration of approximately $15.6 million and recognized a pre-tax gain of $0.7 million, which is recorded in Net Gain on Sales of Assets on the consolidated statements of income. The working capital settlement finalized in 2021 was not material.

IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with ASC 360, Property, Plant and Equipment, where an impairment loss is indicated if the total undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value, with the difference recorded within Impairment Charges on the consolidated statements of income. Fair values can be determined based on agreements to sell assets as well as by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques.

We assessed the long-lived assets of SJI and SJG as of December 31, 2021 and 2020 to determine whether a potential impairment was indicated, including assessing the impact of the COVID-19 pandemic. There were no indicators noted through these assessments that an impairment had occurred.

In 2019, total impairment charges of $10.8 million (pre-tax) were recorded, $2.4 million of which were related to the expected purchase price of two of the unsold solar sites discussed in "Divestitures" being less than their carrying value. The other $8.4 million were impairments of goodwill and identifiable intangible assets, which were the result of the purchase price for MTF and ACB discussed in "Divestitures" being less than its carrying value. These impairment charges were recorded within Impairment Charges on the consolidated statements of income in 2019 and were included within the Renewables segment.

For considerations related to impairments of goodwill and other intangible assets under FASB ASC 350, Intangibles - Goodwill and Other, see Note 21.

EQUITY INVESTMENTS - Marketable equity securities that are purchased as long-term investments are classified as Available-for-Sale Securities and carried at their fair value on the consolidated balance sheets. Any unrealized gains or losses are included in AOCL.

SJI, through wholly-owned subsidiaries, holds significant variable interests in several companies but is not the primary beneficiary.  Consequently, these investments are accounted for under the equity method. SJI includes the operations of these affiliated companies on a pre-tax basis in the statements of consolidated income under Equity in (Losses) Earnings of Affiliated Companies. In the event that losses and/or distributions from these equity method investments exceed the carrying value, and the Company is obligated to provide additional financial support, the excess will be recorded as either a current or non-current liability on the consolidated balance sheets. If we have provided any additional financial support to the investee, such as loans or advances, our share of losses that exceed the carrying amount of our investment are recorded against that amount of financial support.  An impairment loss is recorded when there is clear evidence that a decline in value is other than temporary. See discussion of our equity method investments, including PennEast and Energenic and their related impairment losses, in Note 3.

NONCONTROLLING INTERESTS - Interests held by third parties in consolidated majority-owned subsidiaries are presented as noncontrolling interests, which represents the noncontrolling stockholders’ interests in the underlying net assets of the Company’s consolidated majority-owned subsidiaries. As of December 31, 2021, SJI's noncontrolling interests balances are solely related to the Catamaran projects (see Note 20).

ESTIMATES AND ASSUMPTIONS - The consolidated financial statements were prepared to conform with GAAP. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Therefore, actual results could differ from those estimates. Significant estimates include amounts related to regulatory accounting, energy derivatives, environmental remediation costs, legal contingencies, pension and other postretirement benefit costs, revenue recognition, goodwill, evaluation of equity method investments for other-than-temporary impairment, income taxes and allowance for credit losses. Estimates may be subject to future uncertainties, including the continued evolution of the COVID-19 pandemic and its impact on our operations and economic conditions, which could affect the fair value of the ETG reporting unit and its goodwill balance (see Note 21), as well as the allowance for credit losses and the total impact and potential recovery of incremental costs associated with COVID-19 (see Notes 7 and 11, respectively).

REGULATION - The Utilities are subject to the rules and regulations of the BPU. See Note 10 for a discussion of the Utilities' rate structure and regulatory actions. The Utilities maintain their accounts according to the BPU's prescribed Uniform System of Accounts. The Utilities follow the accounting for regulated enterprises prescribed by ASC 980, Regulated Operations, which allows for the deferral of certain costs (regulatory assets) and creation of certain obligations (regulatory liabilities) when it is probable that such items will be recovered from or refunded to customers in future periods. See Note 11 for more information related to regulatory assets and liabilities.

OPERATING REVENUES - Gas and electric revenues are recognized in the period the commodity is delivered to customers. For retail customers (including customers of SJG) that are not billed at the end of the month, we record an estimate to recognize unbilled revenues for gas and electricity delivered from the date of the last meter reading to the end of the month. The Utilities also have revenues that arise from alternative revenue programs, which are discussed in Note 19. For ETG and SJG, unrealized gains and losses on energy-related derivative instruments are recorded in Regulatory Assets or Regulatory Liabilities on the consolidated balance sheets of SJI and SJG (see Note 16) until they become realized, in which case they are recognized in operating revenues. SJRG's gas revenues are recognized in the period the commodity is delivered, and operating revenues for SJRG include realized and unrealized gains and losses on energy-related derivative instruments. See further discussion under "Derivative Instruments." SJRG presents revenues and expenses related to its energy trading activities on a net basis in operating revenues. This net presentation has no effect on operating income or net income. The Company recognizes revenue for commissions received related to SJESP appliance service contracts, along with commissions received related to AEP and EnerConnex energy procurement service contracts, on a monthly basis as the commissions are earned. Marina recognizes revenue for renewable energy projects when output is generated and delivered to the customer, and when renewable energy credits have been transferred to the third party at an agreed upon price. See further information in Note 19.

We considered the impact the COVID-19 pandemic has had on operating revenues, noting that SJI and SJG have not seen a significant reduction in revenues as a result of the pandemic. This is due to the delivery of gas and electricity being considered an essential service, with delivery to customers continuing in a timely manner with no delays or operational shutdowns taking place to date. To the extent that the pandemic does impact our ability to deliver in the future, operating revenues could be impacted. Currently, the impact of the pandemic to the collectability of our accounts receivable continues to be monitored, but such receivables have traditionally been included in rate recovery (see Note 11).

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES - Accounts receivable are carried at the amount owed by customers. Accounts receivable are recorded gross on the consolidated balance sheets with an allowance for credit losses shown as a separate line item titled Provision for Uncollectibles. Beginning January 1, 2020, an allowance for credit losses was established in accordance with ASC 326, Financial Instruments - Credit Losses, meaning accounts receivables and unbilled revenues are carried at net realizable value based on the allowance for credit loss model, which is based on management's best estimate of expected credit losses to reduce accounts receivable for amounts estimated to be uncollectible. These estimates are based on such data as our accounts receivable aging, collection experience, current and forecasted economic conditions and an assessment of the collectibility of specific accounts. See Note 7.

NATURAL GAS IN STORAGE – Natural Gas in Storage is reflected at average cost on the consolidated balance sheets, and represents natural gas that will be utilized in the ordinary course of business.

ARO - The amounts included under ARO are primarily related to the legal obligations of SJI and SJG to cut and cap gas distribution pipelines when taking those pipelines out of service in future years. These liabilities are generally recognized upon the acquisition or construction of the asset, or when management has sufficient information to make an estimate of the obligation. The related asset retirement cost is capitalized concurrently by increasing the carrying amount of the related asset by the same amount as the liability and is depreciated over the remaining life of the related asset. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO.

ARO activity was as follows (in thousands):

SJI (includes SJG and all other consolidated subsidiaries):	2021		2020
AROs as of January 1,	$	202,092	$	263,950
Accretion	8,875		8,185
Additions	6,605		6,574
Settlements	(8,736)		(9,564)
Revisions in Estimated Cash Flows (A)	20,194		(67,053)
AROs as of December 31,	$	229,030	$	202,092
SJG:	2021		2020
AROs as of January 1,	$	89,252	$	96,509
Accretion	3,776		4,121
Additions	3,017		3,729
Settlements	(2,221)		(2,579)
Revisions in Estimated Cash Flows (A)	9,547		(12,528)
AROs as of December 31,	$	103,371	$	89,252

(A) The revisions in estimated cash flows for SJI and SJG for the year ended December 31, 2021 reflect changes in inflation, and for the year ended December 31, 2020 reflect decreases in the estimated retirement costs primarily as a result of changes in contractor costs to settle the ARO liability, along with a decrease to the discount rate.

PROPERTY, PLANT AND EQUIPMENT - For regulatory purposes, utility plant is stated at original cost, which may be different than costs if the assets were acquired from an unregulated entity. Nonutility property, plant and equipment is stated at cost. The cost of adding, replacing and renewing property is charged to the appropriate plant account.

Utility Plant balances and Nonutility Property and Equipment as of December 31, 2021 and 2020 were comprised of the following (in thousands):

	SJI (includes SJG and all other consolidated subsidiaries):				SJG
	2021		2020		2021		2020
Utility Plant
Production Plant	$	241	$	1,334	$	25	$	25
Storage Plant	82,313		90,294		62,140		61,971
Transmission Plant	345,716		338,981		322,051		311,272
Distribution Plant	4,703,918		4,330,797		2,923,016		2,705,893
General Plant	430,940		428,737		264,194		265,185
Other Plant	1,955		1,955		1,855		1,855
Utility Plant In Service	5,565,083		5,192,098		3,573,281		3,346,201
Construction Work In Progress	117,722		73,563		40,079		41,630
Total Utility Plant	$	5,682,805	$	5,265,661	$	3,613,360	$	3,387,831
Accumulated Depreciation	(975,619)		(914,122)		(656,829)		(606,925)
Net Utility Plant	$	4,707,186	$	4,351,539	$	2,956,531	$	2,780,906
Nonutility Property and Equipment
Solar Assets	$	61,478	$	40,380	N/A		N/A
Fuel Cell Assets	80,550		80,546		N/A		N/A
Other Assets	24,711		26,838		N/A		N/A
Construction Work In Progress (A)	73,764		—
Total Nonutility Property and Equipment	$	240,503	$	147,764
Accumulated Depreciation	(35,367)		(35,069)
Net Nonutility Property and Equipment	$	205,136	$	112,695

(A) Represents costs incurred for ongoing construction of fuel cells, solar energy projects, and renewable natural gas facilities and equipment at dairy farms.

DEPRECIATION - We depreciate utility plant on a straight-line basis over the estimated remaining lives of the various property classes. These estimates are periodically reviewed and adjusted as required after BPU approval. The composite annual rate for all SJG depreciable utility property was approximately 2.4% in 2021, 2.5% in 2020, and 2.2% in 2019. The composite rate for all ETG depreciable utility property was approximately 2.5% in 2021, 2.3% in 2020, and 2.4% in 2019. The actual composite rate may differ from the approved rate as the asset mix changes over time. Except for retirements outside of the normal course of business, accumulated depreciation is charged with the cost of depreciable utility property retired, less salvage.

All solar and fuel cell assets are included in Nonutility Property, Plant & Equipment on the consolidated balance sheets. Depreciation for solar assets is computed on a straight-line basis over the estimated useful lives of the assets, which range from 20 to 35 years depending on the length of underlying project contracts. All other nonutility property depreciation is computed on a straight-line basis over the estimated useful lives of the property, ranging up to 15 years. Gain or loss on the disposition of nonutility property is recognized in operating income.

CAPITALIZED SOFTWARE COSTS - For implementation costs incurred in a cloud computing arrangement that is a service contract, SJI and SJG capitalize certain costs incurred during the application-development and post-implementation-operation stages (provided the costs result in enhanced functionality to the hosted solution) in accordance with ASC 350-40. These costs are amortized over the life of the cloud computing arrangement. All other costs that do not meet the capitalization criteria per ASC 350-40 are expensed as incurred.

LEASES - SJI, directly and through certain of its subsidiaries, including SJG, is a lessee of real estate (land and building), fleet vehicles, and office equipment. The Company evaluates its contracts at the lease inception date for the purpose of determining

whether the contract is, or contains, a lease on the basis of whether or not the contract grants the Company the use of a specifically identified asset for a period of time, as well as whether the contract grants the Company both the right to direct the use of that asset and receive substantially all of the economic benefits from the use of the asset. We measure the right-of-use asset and lease liability at the present value of future lease payments excluding variable payments based on usage or performance. The majority of our leases are comprised of fixed lease payments, with a portion of the Company’s real estate, fleet vehicles, and office equipment leases including lease payments tied to levels of production, maintenance and property taxes, which may be subject to variability. Variable lease costs not included in the measurement of the lease are presented and disclosed as variable lease cost. We also evaluate contracts in which we are the owner of an underlying asset in the same manner as if it was a lease, to determine if we should be considered the lessor of that asset.

The discount rate used to classify and measure a lease where SJI is a lessee is the rate implicit in the lease unless that rate cannot be readily determinable. In that case, the Company uses its incremental borrowing rate which is a lease-specific secured borrowing rate that factors in SJI’s credit standing and the lease term. SJI uses its incremental borrowing rate as the rate implicit in its leases is not readily determinable, except for the related party lease with SJG as discussed in Note 9.

When measuring a lease, we include options to extend a lease in the lease term when it is reasonably certain that the option will be exercised and exclude all options to terminate the lease when it is reasonably certain that the option will not be exercised. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that we would exercise such option. The renewal options in the leases generally allow the Company to extend the lease for an additional period of between 1 and 5 years, with the exception of a lease agreement between SJI and SJG (see Note 9). Our lease agreements generally do not include restrictions, financial covenants or residual value guarantees. In addition, other than the intercompany lease between SJI and SJG (see Note 9), the Company has not entered into any related party leases.

ASC 842 includes certain practical expedients for arrangements where we are a lessee. We have elected, for all asset classes, the practical expedient to not separate lease components (e.g., costs related to renting the property) from their related non-lease components (e.g., common area maintenance costs), resulting in accounting for them as a single lease component. We have similarly elected, for all asset classes, the balance sheet recognition exemption for all leases with a term of 12 months or less. ASC 842 defines a short-term lease as any lease with a term of 12 months or less which does not include a purchase option that is reasonably certain of being exercised. ASC 842 includes a balance sheet recognition exemption for short-term leases, which the Company has elected for all asset classes. The Company recognizes lease cost for short-term leases on a straight-line basis over the lease term.

DEBT ISSUANCE COSTS & DEBT DISCOUNTS - Debt issuance costs and debt discounts are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt, and are presented as a direct deduction from the carrying amount of the related debt. See Note 14 for total unamortized debt issuance costs and debt discounts that are recorded as a reduction to long-term debt on the consolidated balance sheets of SJI and SJG.

AFUDC & CAPITALIZED INTEREST - SJI and SJG record AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities, at the rate of return on the rate base utilized by the BPU to set rates in the Utilities' last base rate proceedings, and amounts are included in Utility Plant on the consolidated balance sheets. These capitalized interest amounts are included in all plant categories, including Construction Work In Progress, in the Utility Plant table above, based on the nature of the underlying projects that qualified for AFUDC and each project's in-service status. For SJG's accelerated infrastructure programs and ETG's infrastructure investment programs, SJG and ETG record AFUDC at a rate prescribed by the programs which are discussed in Note 10. While cash is not realized currently, AFUDC increases the regulated revenue requirement and is included in rate base and recovered over the service life of the asset through a higher rate base and higher depreciation.

Interest charges are presented net of AFUDC and capitalized interest on the statements of consolidated income. The amount of AFUDC and interest capitalized by SJI (including SJG) for the years ended December 31, 2021, 2020 and 2019 was $5.7 million, $7.1 million and $6.0 million, respectively. The amount of AFUDC and interest capitalized by SJG for the years ended December 31, 2021, 2020 and 2019 was $2.9 million, $5.6 million and $4.5 million, respectively.

DERIVATIVE INSTRUMENTS - SJI accounts for derivative instruments in accordance with ASC 815, Derivatives and Hedging. We record all derivatives, whether designated in hedging relationships or not, on the consolidated balance sheets at fair value unless the derivative contracts qualify for the normal purchase and sale exemption. In general, if the derivative is designated as a fair value hedge, we recognize the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk in earnings. SJI and SJG have no fair value or cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives, strategies for undertaking various

hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment or forecasted transaction. Due to the application of regulatory accounting principles under ASC 980, gains and losses on derivatives related to SJG's and ETG's gas purchases are recorded through the BGSS clause.

Initially and on an ongoing basis, we assess whether derivatives designated as hedges are highly effective in offsetting changes in cash flows or fair values of the hedged items. We discontinue hedge accounting prospectively if we decide to discontinue the hedging relationship; determine that the anticipated transaction is no longer likely to occur; or determine that a derivative is no longer highly effective as a hedge. In the event that hedge accounting is discontinued, we will continue to carry the derivative on the balance sheet at its current fair value and recognize subsequent changes in fair value in current period earnings. Unrealized gains and losses on the discontinued hedges that were previously included in AOCL will be reclassified into earnings when the forecasted transaction occurs, or when it is probable that it will not occur. Hedge accounting has been discontinued for all remaining derivatives that were designated as hedging instruments. As a result, unrealized gains and losses on these derivatives, that were previously recorded in AOCL on the consolidated balance sheets, are being recorded into earnings over the remaining lives of the derivative contracts.

TREASURY STOCK – SJI uses the par value method of accounting for treasury stock. As of December 31, 2021 and 2020, SJI held 229,978 and 256,372 shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.

INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with ASC 740, Income Taxes (see Note 4). Certain deferred income taxes are recorded with offsetting regulatory assets or liabilities by the Company to recognize that income taxes will be recovered or refunded through future rates. A valuation allowance is recorded when it is more likely than not that any of SJI's or SJG's deferred tax assets will not be realized (see Note 4).

The U.S. federal government provides businesses with an ITC under Section 48 of the Internal Revenue Code, available to the owner of solar and fuel cell systems that are purchased and placed into service. The Company recognizes ITC on eligible assets in the year in which the project commences commercial operations. Among other requirements, such credits require projects to have commenced construction by a certain date. Accordingly, projects were eligible for a 30% ITC if they commenced construction in 2019, 26% for projects that commence construction in 2020-2022, 22% for projects that commence construction in 2023, and 10% for projects that commence construction thereafter. SJI recorded ITCs of $3.9 million on solar projects and $21.3 million on solar and fuel cell projects in the years ended December 31, 2021 and 2020, respectively. No ITC was recorded during 2019.

TAX SETTLEMENT - In August 2021, ETG recognized a gain of $11.0 million from a UTUA settlement agreement with the New Jersey Division of Taxation. The gain is presented within Energy and Other Taxes in the consolidated statements of income for 2021.

CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents.

ACQUISITION ACCOUNTING - At the time of an acquisition, management will assess whether acquired assets and activities meet the definition of a business. If the definition of a business is met, the Company accounts for the acquisition as a business combination and applies the acquisition method. Operating results from the date of acquisition are included in the acquiring entity's financial statements. The consideration transferred for an acquisition is the fair value of the assets transferred, the liabilities incurred or assumed by the acquirer and the equity interests issued by the acquirer. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill.

Assets acquired that do not meet the definition of a business are accounted for as an asset acquisition. The purchase price of each asset acquisition is allocated based on the relative fair value of assets acquired.

Determining the fair value of assets acquired and liabilities assumed requires judgment. Fair values are determined by using market participant assumptions and typically include the timing and amounts of future cash flows, incurred construction costs, the nature of acquired contracts, discount rates, and expected asset lives. Acquisition-related costs are expensed as incurred.

See Note 20.

AMA - On July 1, 2018, SJRG purchased from a third party an AMA whereby SJRG manages the pipeline capacity of ETG. Total cash paid was $11.3 million. The AMA expires on March 31, 2022; both entities plan to extend this AMA prior to its expiration. Under the AMA, SJRG pays ETG an annual fee of $4.25 million, plus additional profit sharing as defined in the AMA. The amounts received by ETG will be credited to its BGSS clause and returned to its ratepayers. The total purchase price was allocated as follows (in thousands):

Natural Gas in Storage	$	9,685
Intangible Asset	19,200
Profit Sharing - Other Liabilities	(17,546)
Total Consideration	$	11,339

As of December 31, 2021 and 2020, the balance of the intangible asset is $1.3 million and $6.4 million, respectively, and is recorded to Other Current Assets (2021 and 2020) and Other Noncurrent Assets (2020 only) on the consolidated balance sheets of SJI, with the reduction being due to amortization. As of December 31, 2021 and 2020, the balance in the liability is $3.5 million and $7.0 million and is recorded to Regulatory Liabilities on the consolidated balance sheets of SJI, with the change resulting from profit sharing earned.

THIRD PARTY GAS SUPPLIER REFUND - During the second quarter of 2020, a third party pipeline capacity supplier utilized by the Utilities and the wholesale energy operations at SJRG in the normal course of business settled its rate case with the FERC. As part of the executed settlement, the third party supplier was ordered to refund customers for over billings on transportation costs that had been charged during the rate case period. As a result, SJRG and SJG received refunds totaling approximately $11.2 million and $10.0 million, respectively, in July 2020. Of the total SJRG refund, approximately $7.1 million was remitted to ETG under the terms of the AMA (see above). As transportation costs incurred by ETG under the AMA can be recovered from ratepayers under its BGSS rate mechanism, the $7.1 million was recorded as a Regulatory Liability (see Note 11). For the remaining $3.9 million retained by SJRG, approximately $3.8 million was recorded as Operating Revenues; as noted above, SJRG presents revenues and expenses related to its energy trading activities on a net basis in Operating Revenues. Of the remaining amount, $0.2 million was remitted to ELK, and $0.1 million was related to interest and was recorded in Other Income. As SJG also recovers these costs through its BGSS rate mechanism, the $10.0 million refund was recorded as a reduction to SJG's Regulatory Assets (see Note 11).

COMPREHENSIVE INCOME - This measures all changes in common stock equity that result from transactions and events other than transactions with owners. Comprehensive income consists of net income attributable to the Company, changes in the fair value of qualifying hedges, and certain changes in pension and other postretirement benefit plans. SJI and SJG release income tax effects from AOCL on an individual unit of account basis.

NEW ACCOUNTING PRONOUNCEMENTS -

Recently Adopted Standards:

Standard	Description	Date of Adoption	Application	Effect on the Financial Statements of SJI and SJG
ASU 2019-12: Simplifying the Accounting for Income Taxes	This ASU removes exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for changes in ownership of a foreign subsidiary or equity method investment, and the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss. The guidance also adds requirements to reflect changes to tax laws or rates in the annual effective tax rate computation in the interim period in which the changes were enacted, to recognize franchise or other similar taxes that are partially based on income as an income-based tax and any incremental amounts as non-income-based tax, and to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.	January 1, 2021	Modified retrospective for amendments related to changes in ownership of a foreign subsidiary or equity method investment; Modified retrospective or retrospective for amendments related to taxes partially based on income; Prospective for all other amendments	Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG.
ASU 2020-01: Clarifying the Interactions between Topic 321 (Investments - Equity Securities), Topic 323 (Investments - Equity Method and Joint Ventures), and Topic 815 (Derivatives and Hedging)	The amendments in this ASU clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments in this ASU also clarify that, for the purposes of applying Topic 815, an entity should not consider whether, upon the settlement of a forward contract or exercise of a purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825.	January 1, 2021	Prospective	Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG.

Standards Not Yet Effective:

Standard Description Date of Adoption Application Effect on the Financial Statements of SJI and SJG

ASU 2020-04:
Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

ASU 2021-01: Reference Rate Reform (Topic 848) The amendments in ASU 2020-04 provide various optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as the "discounting transition"). March 12, 2020 through December 31, 2022

An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Prospective for contract modifications and hedging relationships. Once elected for a Topic or an Industry Subtopic, the amendments in this Update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. Management does not expect adoption of this guidance to have a material impact on the financial statements of SJI and SJG. Management will adopt the new guidance effective January 1, 2022.

ASU 2020-06: Accounting for Convertible Instruments and Contracts in an Entity's Own Equity The amendments in this ASU simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20. Under the amendments, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The amendments also add new convertible instrument disclosure requirements. Additionally, the amendments in this ASU remove certain conditions from the settlement guidance within the derivative scope exception guidance contained in Subtopic 815-40 and further clarify the derivative scope exception guidance. Finally, the amendments in this ASU align the diluted EPS calculation for convertible instruments by requiring that an entity use the if-converted method instead of the treasury stock method when calculated diluted EPS for convertible instruments. January 1, 2022; early adoption permitted, but not before January 1, 2021 Retrospective or Modified Retrospective Management does not expect adoption of this guidance to have a material impact on the financial statements of SJI and SJG.

ASU 2021-08: Business Combinations (ASC 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers The amendments to ASC 805 in this ASU require an acquirer to account for revenue contracts acquired in a business combination in accordance with ASC 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired contracts. The standard also provides practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from a business combination. January 1, 2023; early adoption is permitted, including adoption in an interim period Prospectively to business combinations occurring on or after the effective date of the amendments These amendments have not yet been adopted and management is currently evaluating whether to adopt this amendment prior to the effective date.